Vaseeharan & Anor v Uthayaranjan

The claimants seek summary judgment upon their claim and upon the counterclaim under CPR Part 24, alternatively that the defence and counterclaim be struck out under CPR Part 3.4(2)(b) as an abuse of process.

The basic facts of this case are relatively simple. The first claimant owns or has interests in a series of fuel service stations. The one that is directly involved in this case is Barkston Service Station at Barkston, Grantham, Lincolnshire.

The Barkston Service Station was acquired by the first claimant in about October 2005. In fact, the first claimant is involved in two businesses on those premises run under the same name: a fuel service station and a vehicle repair centre. I shall refer to them together as “the Barkston Business” or “the Business”, save where it is necessary to distinguish between them. The extent to which they are run in practice as a single business is contentious but I do not consider it necessary to decide that question for disposal of the present application. Also, more recently, a car-wash has started operation on a part of the site which appears to be leased out to a third party and is operated entirely separately from the Barkston Business.

The fuel service station side of the Business was run as an unincorporated business to the end of August 2007. The claimants say that as from 1 September 2007, the fuel service station business was transferred to the second claimant which was already operating the vehicle repair centre. The second claimant is a company jointly owned by the first claimant and his wife and of which the first claimant is the sole director. The claimants say that the second claimant sold fuel that it obtained from the first claimant and that the first claimant is entitled to be paid over the revenue from fuel sales.

There is no dispute that the defendant worked as the manager at Barkston Service Station from the time that it was acquired by the first claimant in 2005 until the events that give rise to these proceedings led to his abrupt departure on 29 June 2009. In that capacity, he was responsible for attending to the paying in of cash takings and cheques received by the Business at the local branch of its bank. There is also no dispute that for about a year before moving to Barkston he managed one of the first claimant’s other service stations, Ringroad Service Station in Derby (“the Ringroad Business”). The defendant is the brother of a friend of the first claimant who also works for him.

On 22 May 2009, the defendant went on holiday with his family to Sri Lanka. In his absence, the first claimant effectively covered his role as the manager at Barkston. In carrying out that role, the first claimant noted what he considered were serious discrepancies between the amount of cash taken by the Business and the amounts banked by the defendant as the takings in the previous months. This led to further investigation and the first claimant concluded that the defendant had been misappropriating monies from the Business. On the defendant’s return, the first claimant confronted him with this allegation, which the defendant denied. But as the first claimant received no explanation for the discrepancies which he considered satisfactory, on 29 June 2009 he gave the defendant a letter written on behalf of the second claimant stating that it was suspending the defendant’s employment. Despite the wording of the letter, it has been taken by both sides as terminating the arrangement (to use a neutral expression) whereby the defendant worked at the Business.

On 22 July 2009, the first claimant obtained without notice an injunction from Jack J. restraining the defendant from removing assets up to the level of £150,000. Proceedings were commenced on 24 July 2009 with a claim for an account of money wrongfully had and received and consequent payment. The Particulars of Claim give an estimate of the amount wrongfully misappropriated at between £65,000 and £150,000. On 29 July 2009, at a further hearing at which the defendant was represented, Judge Seymour QC renewed the freezing injunction on amended terms regarding the customary exception for living expenses.

Subsequently, the first claimant realised that in fact the action should be in the name also of the second claimant since on the claimants’ case it was the second claimant that employed the defendant as from 1 September 2007. The defendant did not oppose an amendment of the claim in such terms, which was made on 28 October 2009 pursuant to permission granted by Master Leslie. The claim as amended alleges that money was misappropriated as from 1 September 2007, the date on which the claimants say that the defendant became an employee. Prior to that, the claimants say that the defendant was working as a sole trader operating the service station side of the Barkston Business as what is referred to as a “commission agent”. The details of that arrangement are not directly relevant to the application before me and were not fully explored, but this term appears to mean that the defendant would buy the fuel from the first claimant and resell it on his own account, being paid a fixed fee commission for doing so.

An Amended Defence and Counterclaim and a Reply have been served, and initial disclosure has been given, although each side is complaining about inadequate disclosure by the other.

The defence to the allegation of misappropriation is in effect based on two grounds. First, it is said that the alleged discrepancies fail to take account of cash being used to pay suppliers to the vehicle repair business and other expenses of the Business. That is disputed by the claimants, but it seems to me clear that this is a factual dispute that is incapable of summary resolution. The claimants, realistically, did not press their application very hard on that aspect of the case.

Secondly, the defendant contends that he was never an employee of either claimant but was a partner of the first claimant, first in the Ringroad Business and then on the same basis in the Barkston Business. He says that there was an oral agreement that there would be a partnership whereby he and the first claimant would share equally the profits of the Business; and that he accordingly drew £500-£600 a week as his share of the profits. Indeed, he states that he did this since he started at Barkston in late 2005. On that basis, he raises a counterclaim for an account of his 50% share of profits as a partner in first the Ringroad Business and subsequently the Barkston Business.

The claimants put forward a sustained rebuttal of the allegations that there was any form of partnership. They say that it flies in the face of all the evidence in the contemporary documents and that as regards one piece of evidence on which the defendant has relied to support his contention, it can be demonstrated that his argument upon that evidence is untrue. On that basis, they contend that there is no realistic prospect for that defence being successful and that it should be summarily dismissed.

Together with this application on behalf of the claimants, I heard an application by the defendant to discharge the freezing order for material non-disclosure or alternatively to vary its terms to permit him to draw a larger sum for living expenses. For reasons that I gave at the conclusion of the hearing, I dismissed that application by the defendant but I reserved judgment on the claimants’ application, in particular so that a document which had not yet been disclosed but which the parties were seeking to acquire could be obtained and furnished to the court. That is a letter which the defendant sent to the UK Border Agency (“UKBA”) to which I refer further below.

The principles to be applied on an application for summary judgment are conveniently set out by Lewison J. in The Federal Republic of Nigeria v Santolina Investment Corp [2007] EWHC 437 (Ch) at [4] as regards an application by a defendant against a claimant. Adapting those principles to the situation of an application by a claimant as against a defendant, they are as follows:

“i)

The court must consider whether the defendant has a “realistic” as opposed to a “fanciful” prospect of success: Swain v Hillman [2001] 2 All ER 91;

ii)

A “realistic” claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472, [2003] CP Rep 51, at [8]

iii)

In reaching its conclusion the court must not conduct a “mini-trial”: Swain v Hillman

iv)

This does not mean that the court must take at face value and without analysis everything that a defendant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]

v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550, [2001] BLR 297;

vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2006] EWCA Civ 661, [2007] FSR 63;

vii)

Although there is no longer an absolute bar on obtaining summary judgment when fraud is alleged, the fact that a claim is based on fraud is a relevant factor. The risk of a finding of dishonesty may itself provide a compelling reason for allowing a case to proceed to trial, even where the case looks strong on the papers: Wrexham Association Football Club Ltd v Crucialmove Ltd [2006]EWCA Civ 237, [2007] BCC 139 at [57].”

Here, there is no deed or other written agreement of any kind creating the partnership. However, the arrangements by which the affairs of the Business were conducted were relatively informal and I think it would be wrong at this stage to draw inferences from the absence of a written partnership agreement. Similarly, when on the claimants’ account the defendant became an employee, he was not given a contract of employment.

The defendant’s tax return signed by him for the year ended 5 April 2008 under the question “Were you in partnership?” has been answered: “No”. But the defendant says that that return was prepared for him by his accountant, which was the same firm as acted for the claimants, and that he just signed the return without paying attention to the details. Further, as from September 2007, the defendant received wage slips which were in the name of the second claimant as employer and under which tax was deducted on PAYE. But the defendant states that the first claimant told him that he should continue to operate the Business as before and that it was still “his” (ie, the defendant’s) business. He further asserts that the wage slips did not reflect sums actually being paid to him.

I note that there is not a single document from the period of some five years to June 2009 that supports or evidences a partnership. Nonetheless, and although the matters set out above make me very sceptical of the contention that the defendant and first claimant were ever partners, I would have considered that this is a question for trial and that it would not be appropriate to determine the issue summarily. However, there are two additional and independent matters to be considered.

First, there is a matter relied on strongly by the defendant to support his allegation of partnership. He says that some six months after the move to Barkston he received from the first claimant (out of money held on his account by his solicitors) payment of £5,000 to be used towards the purchase of his home, and that this sum was provided as “part of his profit from the Business”. The first claimant agrees that he provided £5,000 towards the purchase of the defendant’s home but says that this was a loan that was repaid. As mentioned above, disclosure in this action has since taken place and the defendant’s disclosure included his solicitors’ conveyancing file on the purchase. The documents there record the receipt of money for the benefit of the defendant from the first claimant. Then there is an attendance note of 13 April 2006 which states: “He [ie the defendant] has already paid [the first claimant] back the money that was transferred over to us.” The defendant was unable to offer any satisfactory explanation for this, which I consider wholly inconsistent with his assertion that the money was not a loan but a payment on account towards his share of partnership profits.

Secondly, on 13 November 2008, immigration officers of the UKBA conducted an unannounced visit to the premises of the Barkston Service Station and found an illegal migrant worker working at the car-wash there. On 16 February 2009, the UKBA imposed a penalty of £5,000 on the defendant on the basis that he was employing an illegal migrant worker, presumably because the immigration officers had seen the defendant acting as the manager. After the defendant submitted objections, the UKBA cancelled that penalty. On the hearing of the present application, the defendant’s letter of objection to the UKBA was not available although a copy had been requested from the UKBA (as the defendant had not retained a copy himself). Accordingly, I reserved judgment on the application with directions that when the copy was obtained it should be supplied to the court, giving permission for the parties to make submissions upon it. That letter was subsequently produced and both sides served short written submissions.

The defendant’s letter is dated 21 February 2009 and the notepaper bears the defendant’s home address. The two material paragraphs read as follows:

“I have received your letter dated 16.02.09, I regret to inform you, I am not the employer of Barkston Hand Car wash nor do I have any connection with this business. The Employer for the Hand Car Wash is Mr. Mahamed Haleemdeen.

I work as Manager for the next door Barkston Service Station (BP) and my employer is Mr. Puvanasingham Vaseeharan.”

By way of explanation, the written submission on behalf of the defendant states that the letter was prepared for him by the first claimant, and further submits:

“…even if it is accepted (which is denied) that D wrote the letter himself and meant what was written in it, it must be asked what he meant by it. It should not automatically be assumed that D was writing or asserting a full employer-employee relationship as a lawyer would understand it.”

The first claimant refutes the contention that he drafted the letter. But in any event, the defendant signed it, it is in simple English, and the first paragraph would have provided sufficient reason for cancelling the penalty. The only purpose of the assertion in the second paragraph that the defendant was an employee of the first claimant could be to suggest that if there is any liability regarding the Barkston Business as opposed to the car-wash, then such liability should lie on the first claimant and not on the defendant - and indeed that is exactly what UKBA did following receipt of the defendant’s letter, imposing a penalty on the first claimant on 20 May 2009. (A further objection from the first claimant then led to that penalty also being cancelled.) The letter is manifestly inconsistent with the defendant’s claim that he was a partner with the first claimant owning the Barkston Business.

Finally, it is striking that despite the defendant’s allegation that he was told that there was to be an equal division of the partnership profits at the end of the year, there is no suggestion in his evidence that he ever asked for such an annual account or pressed for payment during the four-to-five years prior to May 2009.

In the light of all these matters, I find the allegation that the defendant was in partnership with the first claimant totally incredible. I bear in mind the need to avoid conducting a mini-trial and that to hold that the defendant was not a partner involves finding that he has put forward a dishonest claim. But in my judgment, this is not a case where further investigation will change the outcome. There is simply no realistic prospect of the defendant succeeding on this part of his case.

Since as indicated above other parts of the defence cannot be disposed of summarily, I have considered whether it would not be more appropriate for all issues to go forward to trial. However, I have concluded that would be neither appropriate nor desirable. First, if it is now clear, as I find, that there was no partnership then that disposes of most of the counterclaim, leaving only the alternative claim for breach of an employment contract.

Secondly, disposing of the partnership issue now avoids the need for detailed investigations of the profits of the Barkston and Ringroad Businesses going back to 2004. Should this matter proceed to trial, the scope and costs of that trial will therefore be significantly reduced.

Finally, I take account of the fact that the claim advanced by the claimants is a proprietary claim. The defendant is subject to a freezing order but that is with the proviso that he can draw on the frozen sums to cover his reasonable legal expenses. As at 27 July 2009, the amount so frozen in the defendant’s Barclays account was £79,000. As at 15 April 2010, that sum has been reduced by reason of his legal and living expenses to £23,000. On this basis, if this matter proceeds to trial and the claimants were to succeed, there is a serious risk that there will be nothing left at all from which they can recover. Given that I have reached the clear view that the defendant has no realistic prospect of success on his partnership claim, and having regard to the overriding objective in CPR 1.1, this seems to me an additional reason why that issue should be determined here and now.

Accordingly, I give summary judgment against the defendant on his claim that he was in partnership with the first claimant and dismiss the counterclaim save for paragraphs 15 to 17 and the relevant parts of paragraphs 5 to 7 of the prayer thereof. For the rest, the claimants’ application is dismissed. I will hear counsel as to what consequential orders should be made.